Payment systems have evolved significantly over the years. Initially, simple barter was the main mode of commerce, with a farmer trading food in exchange for tools from a blacksmith. Cultures eventually learned the benefits of genericizing trade, by forming units of money that could be traded freely for all types of goods and service. Money allowed for a “disconnect” between the needs of the vendor and the needs of the vendee, in that the vendee (now a payor) could obtain tools or other goods even if the vendee did not have any products or services that the vendor (now the payee) wanted. The development of money thus removed substantial friction from commerce, and permitted more immediate, flexible, and inexpensive trade between people.
Later, various complex trading systems developed. For example, paper checks have been commonly used as a mode of payment. While checks provide security for the buyer (i.e., they are harder for thieves to use than is cash), they are also less flexible in many ways. For example, the user must carry the checks with him or her. Also, the checks themselves are not guaranteed, so a vendor must trust that the check can ultimately be turned into something of value, like cash or a transfer of funds into the vendor's account. As a result, vendors may use manual (e.g., checking ID) or electronic means to verify the legitimacy of a check, or may institute severe penalties for “bounced” checks so as to discourage illicit use of checks and/or recoup costs incurred from bad checks. Because of these well-known limits, many vendors do not take checks. Also, checks cost money to process and time to fill out (while other people waiting in line behind the check writer fidget angrily), so they are not particularly suited for small-value transactions.
Credit and debit cards are other popular and well-known payment systems. However, they typically require the purchase by a vendor of specialized equipment, and the provision of a communication channel to the card issuer. In addition, credit and debit card companies often charge relatively large transaction fees. As a result, the use of credit or debit cards for low-value transactions, for small vendors, or in locations where access to card-processing technology is unavailable, is not wholly satisfactory.
Other electronic payment systems permit simplified payment to a single vendor. For example, certain organizations permit their customers to register with a bill-paying system. Some of these systems, like common toll road systems, may initially receive payment information, such as a credit card number, from a user, and then may allow the user to dial in or otherwise communicate with the system to pay their bills or put money into their account.